Canadian investor talks about its new acquisition: Neiman Marcus

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Randy Eli Grothe/University of Texas at Dallas

“These iconic brands don’t come to market often,” said André Bourbonnais, an official with the Canadian pension fund that bought luxury chain Neiman Marcus in September with a private equity firm. He spoke in Dallas on Wednesday.

When Canada’s largest pension fund became a new owner of Neiman Marcus Group in September, the fund’s senior vice president of private investments, André Bourbonnais, said he received lots of congratulatory phone calls.

His standard answer was: “We’re really happy about the deal, but call me in five years when we’ve tripled our investment,” Bourbonnais told a breakfast meeting in Dallas on Wednesday.

The Canada Pension Plan Investment Board and private equity firm Ares Management LLC bought Neiman Marcus in a highly leveraged $6 billion deal after four months of extensive research that included visiting half the chain’s stores.

“These iconic brands don’t come to market often,” Bourbonnais said at the event, co-sponsored by the University of Texas at Dallas’ Center for Finance Strategy Innovation and the Consulate General of Canada.

Bourbonnais wouldn’t say whether Neiman Marcus is planning to open stores in Canada, but he said geographic expansion is one way the company could grow.

Neiman Marcus’ former owners, Fort Worth-based TPG and New York-based Warburg Pincus, couldn’t fulfill growth plans for the Dallas-based luxury chain because of the recession, he said.

In Canada, he sees openings for upscale retailers and noted that Nordstrom has already announced plans for multiple stores there. Saks Fifth Avenue, which also has new Canadian owners, Hudson’s Bay Co., is expected to open stores in Canada.

Neiman Marcus pulled back some of its online business plans in China last year but is moving forward there again and is starting to cultivate business in other places, including Australia. It has expanded its ability to fill orders from most countries.

Last month, after Neiman Marcus fashion director Ken Downing held events in Australia, online orders from customers there “went up exponentially,” Neiman Marcus CEO Karen Katz said in a call with analysts Wednesday.

“We believe Neiman Marcus will be a very successful investment,” Bourbonnais said. His investment horizon is five to seven years, a common time frame for private equity investments.

The fund invests in everything from toll roads to hospitals. Canada’s pension fund has about a $200 billion surplus, and Canadian workers plow in $5 billion to $6 billion a year from payroll deductions. The investment board has about $50 billion of those funds to put to work for pensioners.

Bourbonnais said the fund has more flexibility than most private investors and may decide to buy out its partner Ares if its managers want a different exit time frame. Unlike a typical private equity investor, the investment arm of Canada’s public pension fund doesn’t have to raise cash from investors.

And to critics of the private equity model, Bourbonnais said in an interview after his speech that he can take a longer view and not look at quarter-to-quarter results for a company like Neiman Marcus. “Our growth plan includes an appropriate capital expenditure program well and above servicing of debt requirements,” he said.

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